Israel to hold rates unchanged under acting central bank chief

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JERUSALEM (Reuters) – Israel’s central bank is expected to leave short-term interest rates unchanged again on Monday against a backdrop of weaker than expected growth, in a decision that will be led by Deputy Governor Nadine Baudot-Trajtenberg.

Ten out of 12 economists in a Reuters poll said policymakers would keep the Bank of Israel’s benchmark rate <ILINR=ECI> at 0.1 percent, where it has stood since February 2015, when the decision is announced at 4 p.m. (1400 GMT). Two economists forecast a 15 basis point increase to 0.25 percent.

Israel’s inflation rate was steady at 1.2 percent in October, above expectations for a 1.1 percent rate but within the government’s annual target of 1 percent to 3 percent.

But a preliminary estimate of third-quarter economic growth published last week came in at an annualised 2.3 percent – well below a consensus forecast of 2.8 percent – and growth estimates for the first and second quarters were also revised lower.

As a result, a number of economists lowered their 2018 economic growth projections to 3.4 percent to 3.5 percent from 3.7 percent.

“In light of the weak growth figure, we do not believe the Bank of Israel will raise interest rates on Monday, despite higher than expected inflation and a weakening of the shekel,” Ofer Klein, head of economics and research at Harel Insurance and Finance, said.

Israel’s cabinet last week approved the nomination of Amir Yaron, a professor at the Wharton School of the University of Pennsylvania, as the next governor of the Bank of Israel. Yaron is expected to be sworn in on Dec. 24.

He will succeed Karnit Flug, whose five-year term ended earlier in November. As a result, the monetary policy committee (MPC) will be comprised of just five members this week, with Baudot-Trajtenberg as acting central bank chief.

At the last decision on Oct. 8, four of the six MPC members voted to keep rates steady while two sought a 15 basis point increase.

The central bank’s own economists project a rate increase in the first quarter and another during the year to bring the key lending rate to 0.5 percent by the end of 2019.

Leader Capital Markets chief economist Jonathan Katz said there was a 50 percent to 60 percent chance of a rate rise on Monday as inflation was holding within the target range, there was apparent wage pressure in a tight labour market, fiscal policy was expanding and the shekel had climbed 3.2 percent against a basket of currencies since the last rate decision.

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